The Impact of Government Policy on Business

BTEC Business

Scope of this SessionEffects on business of:

• taxation • subsidies• interest rates• exchange rates• public-private partnerships

What We Know Already• we receive money from our work and pay

tax on these earnings (income tax and national insurance)

• we buy goods and services and pay sales tax (VAT)

• firms sell goods and services to us and are taxed on their profits (corporation tax)

• firms pay tax on their employees’ wages (employers’ national insurance contribution)

Money Flows Around the Economy

• When we save a part of our earnings, we are withdrawing income from the flow

• When we pay taxes to the government, this represents a withdrawal too

• We may also spend some of the money on goods or services produced by non-UK businesses. Buying imports also has the effect of withdrawing income from the flow

Injections of Income into the Economy

• When the Government raises public spending, it is injecting income into the flow

• When firms invest in new machinery or premises, this is also an injection of income

• When firms or individuals overseas consume goods and services produced in the UK, this too is an injection of income

The Circular Flow of Income• Make notes on this way of looking

at an economy, from the following Biz/ed page on the ‘Circular Flow of Income’:

• http://www.bized.ac.uk/learn/economics/macro/notes/income.htm